Affordable housing in Ghana, affordable for who?

We read everywhere and have been reading for years: “Ghana needs 100,000 plus affordable houses annually for the next ten years to close the housing deficit gap”.

We all know the announcements in the press: “government building affordable houses for government workers” or “real estate developers advertising affordable houses for sale.”

Government and Real Estate developers have one thing in common: they both call 2 bedroom houses between 35,000 and 40,000 USD affordable.

Ghana real estate developers association (Greda) has proposed solutions in the past, we had our infamous STX deal that never came through and many others offered solutions to our housing deficit, but all hand one thing in common: affordable for over 35,000 Usd per housing unit.

But for who is 35,000 USD affordable?

Let’s check two things:

An affordable rent price

An affordable buying price

Someone renting a house out would like to see a return of investment (ROI) higher than the interest a treasury bill accrues; otherwise it’s better to invest in treasury bills instead of trying to find tenants, trying to collect your rent and constantly paying maintenance costs.

That current Treasury bill interest stands at about 13% that means that including maintenance costs an investor is targeting 20% ROI.

So an investor (or the state) needs a rental price of 583 USD or 2,800 GHC monthly. (A)

Let’s get to buying the same affordable housing unit.

Several Ghanaian banks and institutions are providing mortgage schemes with payment terms of 10 years.

Without boring you about calculations, the cheapest interest of 29% on a 10 year loan facility of 70% of the value of the property comes down to 120 monthly payments of 2,685 GHC. (B) Let’s not forget that the new house owner first needs to find 50,000 GHC to be able to qualify for this mortgage and after that needs to insure the house on behalf of the bank and maintain the property as well.

Roughly the costs bracket for who can afford such an “affordable” house is between 3,000 and 3,500 GHC. But let’s not forget the people living in that property need to eat, drink, buy clothes, pay water and electricity bills, spend money on transport some will have kids in school etc.

So I estimate that people living in such an “affordable” housing unit need an income of at least between 4,000 and 4,500 GHC, either alone or for a working couple.

(I wonder if the average Ghanaian tax payer is aware that the average Ghanaian public servant is enjoying a monthly salary subsidy of 2,800 GHC)

People making that minimum needed amount also pay about 25% taxes, so they need a gross salary of about 5,000 GHC monthly.

How many Ghanaians make 5,000 GHC monthly?

A friend of mine has a good job at a national bank as an accountant, he makes 3,500 GHC monthly and his wife who is a lawyer makes on a very irregular bases an average of 3,000 GHC so they could afford one of these affordable houses.

But they, like many Ghanaians who are “somebody” don’t want an affordable house so they are constructing their “mansion” which is supposed to be finished in a few years.

Fact is that the number of people, employed or self-employed who can afford such an affordable house in Ghana are very limited.

A reasonable good mason, carpenter, mechanic and other professionals (being paid between 2,000 and 3,000 GHC a month), who can in Europe and the US all afford to rent an affordable house, cannot afford a Ghanaian affordable house.

That is why almost all these “affordable” house are either going to government workers or are being sold to Ghanaians abroad.

Real affordable houses for Ghanaians are:

For people having an income of 1,000 Cedis monthly: 300 – 500 Cedis monthly rent (1)

For people having an income of 2,000 Cedis monthly: 500 - 1,000 Cedis monthly rent (2)

For people having an income of 3,000 Cedis monthly: 1,500 – 2,000 Cedis monthly rent (3)

To build such real affordable houses for the first group will be very difficult, so it looks like they will for a longer period of their life be stuck to living with parents or family, renting a single room or living in someone’s uncompleted building.

For people who can afford 750 GHC. (bracket 2) and assisted with long-term low interest loans our government should be able to build simple houses for about 10,000 USD.

The post apartheid era in South Africa saw a lot of construction of so called “Mandela” houses at the former shanty towns. A simple 2 bedroom house smartly designed with strong materials and delivered as a kind of semi finished house. These houses were designed in a way that a 3rd bedroom could easily be attached.

Another system to create living space for the ‘poorest’ in society is to build "block" style houses in a 3 story building like in for example Indonesia, where 30 -40 apartments all have their own chamber and hall but a public toilet, shower and cooking area on each floor. That is at least a step forward for every person living today in a single room, without toilet, shower and kitchen convicted to an “outdoor” life for all of these

The 3rd group of people who is quite well off in Ghana has another big problem.

They have a good income (to Ghanaian standards) but because of their job status need to spend hours every day in traffic jams from areas where they can afford to buy land to build their houses.

Their choice is: living far below your standards close to work or live at or above your standard far from your work. We all know Ghana and Ghanaians over 90% of their choice will be living far and spend 2-3 hours daily in traffic.

For that group, who can actually afford to build a house in Ghana over several years on two salaries, their houses will have a price range between 25,000 and 35,000 USD. (If build and supervised by themselves with simple artisans.

I don’t want to get into Ghana's high interest rates because they are inflation and loan performance related and I don’t foresee that both will be solved in a short period of time.

For all these reasons so called “affordable” houses in Ghana are ending up with public servants or Ghanaians abroad.

If the government ever wants to solve our national housing problem it needs to look at and find solutions for the following problems:

Construction in affordable area’s (land) will work only if jobs are created in these areas. That's why we need to create sub-urban centers which we can turn into regional economic hubs. (sub-urbanization) around these affordable areas with schools and jobs.

The Government and investors should look into and invest in real affordable housing projects between 10,000 and 20,000 USD with affordable financing.

The Government should work on and look at accessibility of the areas where people work.

The government should create tax facilities for private investors in real affordable housing because they can solve a large part of the housing deficit without much investment needed of the government.